My Report Card for 2002 

All That Glitters May Just Be Gold 

Maybe I’m just lucky, I don’t know, but I did get it right again last year. Given the loss of faith in professionals and their firm convictions that the market could go down a third consecutive year, I took considerable flak for my continued defensive stance which was again ultimately proven to be correct. Now that 2002 has been neatly tucked away into history and the vast majority of investors have suffered yet again at the hands of those who always see equities or certain sectors as the only game in town, let’s briefly review the 2002 market indices results.

• the bear market in equities started in October 1999: the first plunge occurred in March 2000; losses of mutual fund portfolios to December 31^st 2002 range from -10% to - 60% and more.
• clients of mine have seen their 4^th consecutive year of positive returns unlike most other investors who have realized extensive losses resulting in greatly decreased lifestyles, significant increases in financial related stresses and anxieties, and in some cases, having to work more years in order to make up for the losses.
• average mutual fund sector returns in 2002 were as follows:
  Canadian Equity Funds -12%:               
  Canadian Balanced  Funds -5.8%:     
  Canadian Bond Funds +6.2%:   
  European Equity Funds -21.8%: 
  Natural Resources Funds + 14.1%:
  Precious Metals Funds + 75.9%.
• because of our weighting in Precious Metals Funds, Natural Resources Funds and Bond Funds your account has benefited from a minimum return of  +18% in 2002 (depending upon your age and sector weighting this number will be higher, not lower). 2002 was the 4^th consecutive year of positive returns which I estimate at 50 to 60% for the full 4 years but always remember that past performance is no guarantee of future results.
• some of your client-held mutual funds which out-performed on the plus side were: Mackenzie Growth Fund: Mackenzie Universal Canadian Resources Fund: Mackenzie Universal Precious Metals Fund: Mackenzie Bond Fund: AGF Bond Fund: AGF Canadian Resources Fund: AGF Precious Metals Fund: Dynamic Focus Plus Natural Resources: Dynamic Canadian Precious Metals Fund: Aim Trimark Canadian Resources Fund. The only under-performers were AGF Japan Fund and Mackenzie Universal Select Managers Japan Fund.

Enclosed you’ll find Jonathan Chevreau’s FP Investing article of Saturday, January 4^th 2003 titled: “Take heart: experts are all over the map.” You will find my comments included in the article, as well as the opinions of others. There is a myriad of problems lurking out there and all require careful monitoring. There is a U.S. and Global debt bubble, a U.S. Real Estate bubble, a mounting U.S. Government and Corporate debt bubble and not to forget an immense and grotesque leveraged $110 trillion derivative monster. These are the problems that will overhang the financial markets in 2003. In order to overcome and avoid the repercussions of any one of these problems one must continue to exercise extreme discipline with appropriate sector weightings focus to continue our successful investment strategy. 

The “Buy & Hold” mantra has been thoroughly discredited and so have many analysts and fund industry types.  How could so many have been so wrong? 2003 will undoubtedly bring many surprises and wake-up calls and therefore it is imperative that we continue on our disciplined path by being over-weighted in those sectors which offer the greatest amount of defensive safety and best return prospects.  We will continue to follow Warren Buffett’s Two Cardinal Rules of Investing, which are:  

Rule No.1 - Never lose money; and

Rule No. 2 - Never forget Rule No.1 

My most sincere thanks to Ed Bugos of Vancouver for his analytical work and brilliant essays which I could not have done without. Also, to Alan Newman of New York, who is among the top echelon of technical analysts in the U.S., who was the only analyst in the U.S. to correctly call for the Nasdaq to crash during the spring of 2000. There are others who with their brilliant work and essays have also assisted me in formulating a “safety first” investment strategy for my clients. Thank you Doug Noland, Marshall Auerback and Bill Fleckenstein. 

Many thanks for your continued confidence, trust and the privilege that you extend to me to be your financial well-being advisor. 

Yours truly, 

Hans Merkelbach

P.S.  2002 Annual Returns per funds held by my clients:

            FIRST PRIORITY OF INVESTING IS TO NEVER LOSE MONEY,
SECOND PRIORITY IS TO MAKE CONSISTENT ABOVE AVERAGE RETURNS.

 PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ALL 2002

PERCENTAGE RETURNS PROVIDED BY www.globefund.com

This Page Last Updated: March 02, 2003
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